Geac’s system known as Millennium keeps track of a host of business information such as account payables, taxes payable, accounts receivable, fixed assets, and others. Trade secrets and highly confidential information are found in a wide variety of materials relating to Millennium. Geac faces substantial competition for all of its Millennium products, and its confidential information and trade secrets allow it to compete effectively and advantageously.

Grace is engaged in the business of computers and software consulting as well as providing a program of maintenancesupport services for Millennium. In 1993, Grace began to offer and perform services for Geac’s licensees, including customizing Millennium software for their specific needs, fixing “bugs” in Millennium software, providing tax and regulatory updates, and modifying Geac’s programming language code. Grace then began offering Millennium licensees Grace’s “Remain on Release” program, which provided Geac customers with Grace’s own version of Geac’s W-2 program. Grace’s W-2 program was initially developed by Cook & Reynolds Services, Inc., a company formed by two former Geac employees. Grace purchased the rights to CNR’s W-2 programs, revised it, and renamed the individual programs to begin with a “GMI” prefix instead of “CNR.”

Geac alleged that it never authorized defendants to market or license Millennium software or upgrades, either to the general public or to specific business clients. Geac further alleged that Ilutzi and Grace illegally and without Geac’s permission copied and used the confidential information to solicit directly in competition with Geac existing Geac licensees and provide them with software and maintenance services for Geac software. Geac alleges as a result, Grace has been able to offer their services at prices significantly lower than those charged by Geac because it was able to avoid the substantial investment in time and money that Geac found necessary to develop the Millennium confidential package.

Geac presented two motions for judgment as a matter of law during trial and one after the jury returned its verdict for the defendants. The trial court denied each of them. In denying plaintiff’s motion for judgment as a matter of law, the trial judge stated that she believed there was ample evidence on which the jury could have decided that the defendants were not liable for copyright infringement. She offered no explanation on what evidence she relied for her conclusion. The court granted summary judgment to the providers on the misappropriation claim and entered judgment on a jury verdict in favor of the providers on the infringement claim.

The Appellate Court reversed an order denying judgment as a matter of law,[1] because upon review of the record, it was apparent that the verdict was not supported by legally sufficient evidence. The Court held that when the record was distilled, filtered, and shaken down, it was apparent that there is no legal basis for dismissal of the copyright infringement claim.

Reynolds testified that the W-2 program was in no way similar to the Millennium program, but his own testimony contradicted his statement. Reynolds stated that he had made a copy of the PAYTXABR program and renamed it CNRTXABR and also acknowledged that it should have stayed with the client and the program should not have been distributed with the other code. Ilutzi further admitted that CNRTXABR was created by copying and modifying Geac's program PAYTXABR and that Grace's "CNRTXABR was used in the making of GMITXABR," both of which supplied the same tax program. Ilutzi conceded that CNRTXABR should not have been in the CNR W-2 program because it was copied from PAYTXABR. Grace's expert acknowledged that Grace's distribution was contrary to "standard industry practice" but did not consider the distribution a copyright infringement because it was de minimis.

In supporting its de minimis defense, Grace asserts that the quantitative infringement amounted to only twenty-seven lines out of 525,000 lines. The court found the argument to be irrelevant as a matter of law. A de minimis defense does not apply where the qualitative value of the copying is material. The Appellate Court agreed with the trial judge appropriately striking the de minimis defense with respect to PAYTXABR from her jury charge, and rejected the argument as well.

The interpretation of the License Agreements was a question of law and not of fact. The defenses raised by defendants were unacceptable as a matter of law. The Appellate Court reversed the Order of the District Court denying Geac judgment as a matter of law on its copyright infringement claims, stating that it was evident that the verdict was not supported by legally sufficient evidence.

Geac also pled a state law claim for misappropriation of trade secrets with respect to Grace's use of Millennium software. Geac argued that Grace breached multiple duties of confidentiality in creating and distributing its W-2 programs and other derivative works. The District court granted Grace’s motion for summary judgment because it held that Geac’s claim was preempted by § 301 of the Copyright Act, 17 U.S.C. §301.

The Appellate Court reviewed de novo as to the question of law whether §301 preempts a state cause of action for misappropriation of trade secrets. Geac argued that “the district court erroneously concluded that Geac’s software... claims were based simply on the use and copying of the software, rather than Grace’s breach of its duties to keep Geac’s software and client list confidential.” The Appellate Court agreed that the extra element precludes preemption, that if their misappropriation of trade secrets claim were based on such breach of duty of trust and confidentiality, it would survive preemption.

Grace did not dispute that the customer lists were not subject to copyright and presumably escape preemption for that reason pursuant to § 301 (b) (1) nor did it contest that customer lists could constitute valid trade secrets. In entering summary judgment, the District Court failed to consider evidence that Geac’s customer lists were not copyrightable material and, therefore, that claims alleging a violation of state laws were not preempted. The claims that Grace misappropriated Geac’s client lists were not preempted and the District Court as a matter of law should not have dismissed them.

Because of the error of law and disputed issues of material facts, the entry of partial summary judgment was improper and was vacated. The issue of misappropriation of trade secrets was remanded to the District Court for further proceedings.

The Appellate Court concluded that Grace and Ilutiz’s cross appeal on numerous issues did not have any merit. Furthermore, it held that the District Court erred in denying Geac’s motion for judgment as a matter of law. The District Court’s judgment rejecting Geac’s claim for misappropriation of trade secrets was vacated and the District Court’s order dismissing defendant’s counterclaims was affirmed.